“As a result, Singtel’s effective stake in Airtel will drop from 39.5% to 35.2% assuming full subscription on the public tranche,” says OCBC Investment Research analyst Joseph Ng in a Monday report.
Singtel also has a 48.9% stake in Bharti Telecom, one of Airtel’s major shareholders.
“Management remains cautiously optimistic of Airtel’s prospects in India, given the significant consolidation, as well as Airtel’s 4% QoQ growth in mobile ARPU after 9 consecutive quarters of decline,” Ng says.
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“Crucially, there has been no change to management’s dividend guidance of 17.5 cents per share for FY19 and FY20,” he adds.
OCBC is keeping its “buy” call on Singtel with a fair value estimate of $3.79.
Meanwhile, RHB Research is maintaining its “neutral” call on Singtel, but lowering its target price to $3.09 from $3.22 previously after factoring in the subscription to the rights issue as well as the dilution in stake post exercise.
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“Singtel trades at 1.5 SD below its historical EV/EBITDA mean which, in our view, reflects the stock’s risk-to-reward profile, with support coming from the sustained 6% dividend yields for FY19F-20F,” the brokerage says in a report on Monday.
“The stock remains our preferred Singapore telco exposure given its earnings diversity and dividend certainty,” it adds.
As at 2.45pm, shares in Singtel are trading 1 cent lower at $2.93. According to OCBC valuations, this implies an estimated price-to-earnings (PE) ratio of 15.7 times and a dividend yield of 6.0% for FY19.
